17618 Federal Register / Vol. 72, No. 67 / Monday, April 9, 2007 / Notices 

requires this information to be compiled 

periodically and published by the 

agency in a form that will be helpful to 

the public, the law enforcement 

community, and Congress. As required 

by section 33112(c), this report provides 

information on theft and recovery of 

vehicles; rating rules and plans used by 

motor vehicle insurers to reduce 

premiums due to a reduction in motor 

vehicle thefts; and actions taken by 

insurers to assist in deterring thefts. 

ADDRESSES: Interested persons may 

obtain a copy of this report and 

appendices by contacting the U.S. 

Department of Transportation, Docket 

Management, Room PL–401, 400 

Seventh Street, SW., Washington, DC 

20590. Docket hours are from 10 a.m. to 

5 p.m. Requests should refer to Docket 

No. 2004–17217. This report and 

appendices may also be viewed on-line 

at: http://www.nhtsa.dot.gov/cars/rules/ 

theft. 

FOR FURTHER INFORMATION CONTACT: Ms. 

Rosalind Proctor, Office of International 

Vehicle, Fuel Economy and Consumer 

Standards, NHTSA, 400 Seventh Street, 

SW., Washington, DC 20590. Ms. 

Proctor’s telephone number is (202) 

366–0846. Her fax number is (202) 493–

2290. 

SUPPLEMENTARY INFORMATION: The Motor 

Vehicle Theft Law Enforcement Act of 

1984 (Theft Act) was implemented to 

enhance detection and prosecution of 

motor vehicle theft (Pub. L. 98–547). 

The Theft Act added a new Title VI to 

the Motor Vehicle Information and Cost 

Savings Act, which required the 

Secretary of Transportation to issue a 

theft prevention standard for identifying 

major parts of certain high-theft lines of 

passenger cars. The Act also addressed 

several other actions to reduce motor 

vehicle theft, such as increased criminal 

penalties for those who traffic in stolen 

vehicles and parts, curtailment of the 

exportation of stolen motor vehicles and 

off-highway mobile equipment, 

establishment of penalties for 

dismantling vehicles for the purpose of 

trafficking in stolen parts, and 

development of ways to encourage 

decreases in premiums charged to 

consumers for motor vehicle theft 

insurance. 

This notice announces publication by 

NHTSA of the annual insurer report on 

motor vehicle theft for the 2001 

reporting year. Section 33112(h) of Title 

49 of the U.S. Code, requires this 

information to be compiled periodically 

and published by the agency in a form 

that will be helpful to the public, the 

law enforcement community, and 

Congress. As required by section 

33112(h), this report focuses on the 

assessment of information on theft and 

recovery of motor vehicles, 

comprehensive insurance coverage and 

actions taken by insurers to reduce 

thefts for the 2001 reporting period. 

Section 33112 of Title 49 requires 

subject insurers or designated agents to 

report annually to the agency on theft 

and recovery of vehicles, on rating rules 

and plans used by insurers to reduce 

premiums due to a reduction in motor 

vehicle thefts, and on actions taken by 

insurers to assist in deterring thefts. 

Rental and leasing companies also are 

required to provide annual theft reports 

to the agency. In accordance with 49 

CFR Part 544.5, each insurer, rental and 

leasing company to which this 

regulation applies must submit a report 

annually not later than October 25, 

beginning with the calendar year for 

which they are required to report. The 

report would contain information for 

the calendar year three years previous to 

the year in which the report is filed. The 

report that was due by October 25, 2004 

contains the required information for 

the 2001 calendar year. Interested 

persons may obtain a copy of individual 

insurer reports for CY 2001 by 

contacting the U.S. Department of 

Transportation, Docket Management, 

Room PL–401, 400 Seventh Street, SW., 

Washington, DC 20590. Docket hours 

are from 10 a.m. to 5 p.m. Requests 

should refer to Docket No. 2004–17217. 

The annual insurer reports provided 

under section 33112 are intended to aid 

in implementing the Theft Act and 

fulfilling the Department’s requirements 

to report to the public the results of the 

insurer reports. The first annual insurer 

report, referred to as the Section 612 

Report on Motor Vehicle Theft, was 

prepared by the agency and issued in 

December 1987. The report included 

theft and recovery data by vehicle type, 

make, line, and model which were 

tabulated by insurance companies and, 

rental and leasing companies. 

Comprehensive premium information 

for each of the reporting insurance 

companies was also included. This 

report, the seventeenth, discloses the 

same subject information and follows 

the same reporting format. 

Issued on: March 30, 2007. 

Stephen R. Kratzke, 

Associate Administrator for Rulemaking. 

[FR Doc. E7–6517 Filed 4–6–07; 8:45 am] 

BILLING CODE 4910–59–P 

DEPARTMENT OF THE TREASURY 

Office of Thrift Supervision 

[No. OTS–2007–0009] 

Savings and Loan Holding Company 

Rating System 

AGENCY: Office of Thrift Supervision, 

Treasury (OTS). 

ACTION: Notice and request for comment. 

SUMMARY: Changes in the environment 

in which depository institutions and 

their holding companies operate have 

had a substantial impact on the way 

they are managed and necessitate 

changes in the way they are supervised. 

OTS supervises a diverse population of 

holding companies ranging from noncomplex companies with limited 

activities to large, internationally active 

conglomerates that engage in a variety of 

activities. OTS has a well-established 

program for meeting its statutory 

responsibilities with respect to savings 

and loan holding companies (SLHCs or 

holding companies) and the thrift 

industry. Holding company supervision 

is an integral part of this oversight 

program, and OTS routinely takes steps 

to enhance its risk-focused supervision 

of holding companies. 

While OTS has emphasized risk 

management in its supervisory 

processes for SLHCs of all sizes and 

complexities, this emphasis is not 

readily apparent in the primary 

components of the current SLHC 

supervisory rating system, CORE 

(Capital, Organizational Structure, 

Relationship, and Earnings). Therefore, 

OTS is considering making changes to 

the component descriptions and rating 

scale used to evaluate the condition of 

SLHCs. All SLHCs are assigned a rating, 

although the degree of supervisory 

scrutiny varies based on a risk-focused 

evaluation of their size, complexity, 

business activities, and risk exposures. 

OTS is committed to maintaining a 

common CORE component framework 

and a rating system that is flexible and 

applies to all SLHCs. After reviewing 

public comments, OTS intends to make 

any necessary changes to the proposal 

and adopt a final SLHC rating system. 

DATES: Comments must be received by 

June 8, 2007. 

ADDRESSES: You may submit comments, 

identified by OTS–2007–0009, by any of 

the following methods: 

• Federal eRulemaking Portal: Go to 

http://www.regulations.gov, select 

‘‘Office of Thrift Supervision’’ from the 

agency drop-down menu, then click 

submit. Select Docket ID ‘‘OTS–2007–

0009’’ to submit or view public 


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1Component ratings are assigned to all complex 

SLHCs and may be assigned, at the examiner’s 

discretion, to noncomplex SLHCs. When assigned, 

the four components are rated on a scale of one to 

three in descending order of performance quality. 

The definitions currently in use are set forth in the 

OTS Holding Companies Handbook. 

comments and to view supporting and 

related materials for this notice of 

proposed rulemaking. The ‘‘User Tips’’

link at the top of the page provides 

information on using Regulations.gov, 

including instructions for submitting or 

viewing public comments, viewing 

other supporting and related materials, 

and viewing the docket after the close 

of the comment period. 

• Mail: Regulation Comments, Chief 

Counsel’s Office, Office of Thrift 

Supervision, 1700 G Street, NW., 

Washington, DC 20552, Attention: OTS–

2007–0009. 

• Hand Delivery/Courier: Guard’s 

Desk, East Lobby Entrance, 1700 G 

Street, NW., from 9 a.m. to 4 p.m. on 

business days, Attention: Regulation 

Comments, Chief Counsel’s Office, 

Attention: OTS–2007–0009. 

Instructions: All submissions received 

must include the agency name and 

docket number for this rulemaking. All 

comments received will be entered into 

the docket and posted on 

Regulations.gov without change, 

including any personal information 

provided. Comments, including 

attachments and other supporting 

materials received are part of the public 

record and subject to public disclosure. 

Do not enclose any information in your 

comment or supporting materials that 

you consider confidential or 

inappropriate for public disclosure. 

Viewing Comments Electronically: Go 

to http://www.regulations.gov, select 

‘‘Office of Thrift Supervision’’ from the 

agency drop-down menu, then click 

‘‘Submit.’’ Select Docket ID ‘‘OTS–

2007–0009’’ to view public comments 

for this notice of proposed rulemaking. 

Viewing Comments On-Site: You may 

inspect comments at the Public Reading 

Room, 1700 G Street, NW., by 

appointment. To make an appointment 

for access, call (202) 906–5922, send an 

e-mail to public.info@ots.treas.gov, or 

send a facsimile transmission to (202) 

906–6518. (Prior notice identifying the 

materials you will be requesting will 

assist us in serving you.) We schedule 

appointments on business days between 

10 a.m. and 4 p.m. In most cases, 

appointments will be available the next 

business day following the date we 

receive a request. 

FOR FURTHER INFORMATION CONTACT: 

Donna Deale, Director, Holding 

Companies and Affiliates, (202) 906–

7488. 

SUPPLEMENTARY INFORMATION: 

The SLHC rating system is a 

management information and 

supervisory tool that systematically 

indicates the condition of SLHCs. It 

provides an evaluation of the SLHC’s 

condition for use by the supervisory 

community and focuses supervisory 

responses and actions. The SLHC rating 

system also provides a measurement 

tool to discuss the enterprise’s condition 

with SLHC management. The current 

SLHC rating system was implemented 

in 1988. The rating system currently 

includes the following components: 

Capital 

The first component of a holding 

company examination is an evaluation 

of Capital. OTS does not apply a 

standardized capital requirement to 

SLHCs. Instead, OTS considers the 

overall risk profile of the consolidated 

entity on a case-by-case basis. This 

involves assessing analytical measures 

that include overall leverage, the level 

of short-term debt and liquidity, cash 

flow, reliance on thrift and other 

subsidiary earnings, interest coverage, 

quality of earnings, and level of 

consolidated tangible and equity capital. 

Individualized capital requirements can 

be used as a tool to achieve this goal 

when necessary. 

Organizational Structure 

The Organizational Structure 

component requires examiners to 

identify the organizational structure and 

ownership and assess any changes. OTS 

also reviews the activities of the holding 

company and other affiliates to 

determine regulatory compliance and to 

assess the risks these activities may pose 

to the thrift. 

Relationship 

In the Relationship component, 

examiners assess the interaction of the 

holding company’s board of directors 

and executive management with the 

thrift. Examiners reach conclusions 

about: 

• The materiality of the thrift to the 

holding company or its controlling 

shareholders; 

• The degree of influence the holding 

company has over the thrift and how 

this influence affects the thrift’s 

operations; 

• Whether the board of directors 

provides adequate oversight for the 

holding company and its subsidiaries; 

• How actively the holding company 

is involved in the management of the 

thrift; 

• The degree of interdependence of 

the thrift and other entities within the 

holding company structure; and 

• Whether the board has 

implemented effective policies and 

procedures to maintain separate 

corporate identities and avoid conflicts 

of interest. 

Earnings 

In the Earnings component, examiners 

assess the holding company’s operations 

and financial condition and their 

current and prospective effect on the 

subsidiary thrift. OTS pays close 

attention to the holding company’s 

earnings trends and capacity as well as 

cash flow. It also evaluates the relative 

contributions and dividend payout 

ratios of significant subsidiaries and the 

overall financial performance of the 

holding company enterprise. 

You can find a thorough description 

along with examination procedures for 

each component in the OTS Holding 

Companies Handbook at http:// 

www.ots.treas.gov. 

After evaluating these four 

components, OTS assigns a composite 

SLHC rating using the following 

definitions: 1

Above Average (A): Holding company 

enterprises in this group have a wealth 

of financial strength. The enterprise 

could be called upon to provide 

financial or managerial resources to the 

thrift if circumstances dictate. Above 

Average holding company enterprises 

may exhibit minor weaknesses, but they 

are deemed to be correctable in the 

normal course of business. For this 

rating, all component ratings will 

generally be rated 1 or 2. 

Satisfactory (S): Holding company 

enterprises in this group are those 

whose effect on the thrift is considered 

neutral. Overall, these holding 

companies exhibit financial conditions 

and operating performance that pose 

only a remote threat to the viability of 

the thrift. Satisfactory holding company 

enterprises generally do not possess the 

financial strength to be considered a 

substantial resource to the thrift. These 

companies may be reliant on the thrift 

for dividends or other sources of funds 

to service debt; however, their debt level 

and expected need for funds from the 

thrift are not considered overwhelming. 

For this rating, the components 

should generally be rated 2, but may 

include components rated 1 or 3. 

Unsatisfactory (U): This rating is 

reserved for holding company 

enterprises that impose a detrimental or 

burdensome effect on the thrift. Such 

companies exhibit high levels of various 

operating weaknesses that at best are 

considered less than satisfactory. There 

exists an inordinate reliance involving 

the thrift. Either the holding company is 


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inordinately reliant on the thrift for cash 

flow, or the thrift is inordinately reliant 

on the holding company for critical 

operating systems. Without immediate 

corrective action, the thrift’s viability 

may be impaired. Enterprises deserving 

of this rating will predominantly have 

components that are rated 3, although 

even one component with a 3 rating 

may suffice to justify an overall U rating 

if the problems are severe enough. An 

Unsatisfactory rating is only given in the 

most severe circumstances. Such a 

rating would be comparable to a 4 or 5 

composite thrift rating, and would carry 

the presumption that formal 

enforcement action is required, 

pursuant to RB 18–1b. 

Since the introduction of this rating 

system, banking organizations and 

SLHCs have become more complex. 

Several SLHCs have significant 

international operations and many 

engage in multiple types of financial 

activities. In addition, certain SLHCs 

that existed prior to the enactment of 

activities restrictions in the GrammLeach-Bliley Act engage in commercial, 

manufacturing, and other retail 

activities. As of December 2006, SLHCs 

had aggregate consolidated assets of 

$7.7 trillion. Because of SLHCs’

diversity and OTS’s risk focused 

holding company examination 

approach, the agency’s approach to 

holding company examinations and 

ratings must document our assessment 

of the risk profile of the holding 

company enterprise as well as 

management’s ability to identify, 

measure, monitor, and control risks. 

Changes to Examination Components 

This document proposes changes to 

two of the existing four examination 

components. OTS is proposing these 

changes to place greater emphasis on 

risk management. The number of 

components and OTS’s risk focused 

examination approach would not 

change because of this proposal. 

Using a slightly revised approach 

within the CORE framework, OTS will 

review two components that focus on 

financial condition (Capital and 

Earnings) and two other components 

(Organizational Structure and Risk 

Management) that focus on the activities 

and operations conducted within the 

enterprise and the SLHC’s risk 

management practices. 

With the exception of the ratings 

changes discussed later in this 

document, OTS is not proposing a 

change to its philosophy on evaluating 

the financial components (Capital and 

Earnings). OTS will continue to evaluate 

capital adequacy relative to a given 

enterprise’s risk profile. 

Within the Organizational Structure 

component, examiners would assess 

inherent risk in the context of lines of 

business, operations, affiliate 

relationships, concentrations, and other 

exposures. The most significant types of 

risk are defined in the proposed rating 

description for the Organizational 

Structure component. Based on its 

experience regulating holding 

companies and on a review of similar 

guidance by other banking and 

supervisory agencies, OTS compiled a 

comprehensive list of risks that holding 

company enterprises face. 

OTS proposes changing the name of 

the ‘‘R’’ component from Relationship to 

Risk Management. Within the Risk 

Management component, examiners 

would evaluate corporate governance; 

board of directors and senior 

management oversight; policies, 

procedures, and limits; risk monitoring 

and management information systems; 

and internal controls. OTS recognizes 

that each SLHC must have the flexibility 

to tailor risk management programs to 

its size, complexity, and inherent risks. 

OTS also recognizes that its most 

complex holding companies are highly 

integrated and may manage risk on an 

enterprise-wide basis, both within and 

across business lines and legal entities. 

Changes to Rating System 

OTS believes that it should refine the 

current holding company supervisory 

approach and ratings system. An 

effective rating system must include an 

accurate assessment of each enterprise’s 

financial and managerial condition. The 

rating system must be flexible and apply 

to holding companies of all sizes and 

complexity. The current rating scale 

does not facilitate meaningful 

distinctions in the strengths and 

weaknesses of an enterprise. Therefore, 

OTS is proposing the use of a five-point 

numeric scale similar to the Uniform 

Financial Institution Ratings System 

(UFIRS) and the OTS CAMELS rating 

system. The five-point scale would be 

used for both composite and component 

ratings assigned to SLHCs. The use of a 

five-point scale will better reflect issues 

of supervisory concern and will provide 

more distinction in the supervisory 

assessment of condition. A five-point 

scale also correlates with and is more 

comparable to the thrift and bank 

holding company rating systems. 

OTS proposes to make one other 

change to the ratings definitions. 

Historically, OTS has based the rating of 

the holding company enterprise on its 

effect on its subsidiary thrift. OTS has 

encountered situations where it has 

supervisory concerns within the holding 

company enterprise, which did not have 

a direct impact on the thrift. OTS 

believes that using the effect on the 

thrift subsidiary as a SLHC rating 

criterion can lead to misinterpretation of 

the rating. It also may not be as accurate 

in portraying the condition of the SLHC 

enterprise as ratings criteria based on 

financial condition, operations, and risk 

profile. 

After thoroughly evaluating the 

language in the ratings definitions, OTS 

believes that language emphasizing the 

SLHC’s effect on its thrift subsidiary 

limits the supervisory purpose of the 

rating. The SLHC’s effect on its thrift 

subsidiary will continue to be an 

important consideration in the 

examination process, but the proposal 

does not include such language as rating 

criterion. 

The proposed changes will elevate the 

prominence of risk management; better 

align holding company examination 

components with OTS’s supervisory 

process; and provide a more accurate 

assessment of the condition of SLHCs. 

OTS recognizes that it bases certain 

guidance and administrative processes 

on the current SLHC rating scale and 

definitions. OTS anticipates that a rating 

of ‘‘4’’ or ‘‘5’’ will equate to an 

‘‘unsatisfactory’’ rating for assessment 

and enforcement purposes. OTS expects 

to conform existing guidance and 

regulations to incorporate any changes 

made to the SLHC rating system. 

Proposed Text of the Savings and Loan 

Holding Company Rating System 

Holding Company Rating System 

The holding company rating system is 

used to assess a holding company’s 

Capital, Organizational Structure, Risk 

Management, and Earnings. Using this 

system, OTS comprehensively and 

uniformly evaluates all holding 

company enterprises, focusing 

supervisory attention on the holding 

company enterprises that are complex 

or exhibit financial and operational 

weaknesses or adverse trends. The 

rating system: 

• Identifies problem or deteriorating 

holding company enterprises 

• Categorizes holding company 

enterprises with deficiencies in 

particular areas 

• Assesses the aggregate strength of 

the SLHC industry. 

Each holding company enterprise 

receives a composite rating based on the 

evaluation factors. 

Composite and component ratings are 

assigned based on a 1 to 5 numeric 

scale. A ‘‘1’’ rating is the highest rating, 

indicating the strongest performance 

and practices and least degree of 

supervisory concern. A ‘‘5’’ rating is the 


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lowest rating, indicating the weakest 

performance and the highest degree of 

supervisory concern. 

Examiners will use the following 

descriptions to assign composite and 

component ratings to SLHCs. 

Description of the Rating System 

Elements 

Composite Rating 

The composite rating is the overall 

assessment of the holding company 

enterprise as reflected by its 

organizational structure, risk 

management, and consolidated financial 

strength. The composite rating 

encompasses both a forward-looking 

and current assessment of the 

consolidated enterprise, as well as an 

assessment of the relationship between 

the companies in the enterprise. The 

composite rating is not a simple 

numeric average of the CORE 

components; rather, the composite 

rating reflects OTS’s judgment of the 

relative importance of each component 

to the operation of the holding company 

enterprise. Some components may 

receive more weight than others 

depending on the SLHC’s activities and 

risk profile. Assignment of a composite 

rating may incorporate any factor that 

significantly affects the overall 

condition of the holding company 

enterprise, although generally the 

composite rating is closely related to the 

component ratings assigned. 

Composite 1. A holding company 

enterprise in this group is sound in 

almost every respect and generally has 

components rated 1 or 2. Any 

weaknesses are minor, and the board of 

directors and management can correct 

them in the normal course of business. 

The enterprise is able to withstand 

economic, financial, and risk exposure 

changes because of solid risk 

management practices and financial 

condition. Cash flow is abundant and 

adequately services debt and other 

obligations. This holding company 

enterprise exhibits strong performance 

and risk management practices relative 

to its size, complexity, and risk profile. 

Composite 2. A holding company 

enterprise in this group is 

fundamentally sound but may have 

modest weaknesses. The board of 

directors and management are capable 

and willing to correct any weaknesses. 

Generally, no component rating should 

be more severe than 3 for this holding 

company enterprise. Risk management 

practices and financial condition create 

stability, and this holding company 

enterprise is capable of withstanding 

business fluctuations. Cash flow is 

adequate to service obligations. Overall, 

risk management practices are 

satisfactory relative to the enterprise’s 

size, complexity, and risk profile. 

Composite 3. A holding company 

enterprise in this group raises some 

degree of supervisory concern in one or 

more of the component areas, with 

weaknesses that range from moderate to 

severe. The magnitude of the 

deficiencies is generally not severe 

enough to rate a component more 

severely than 4. Management may lack 

the ability or willingness to effectively 

address weaknesses within appropriate 

time frames. This holding company 

enterprise is less resistant to adverse 

business conditions. Risk management 

practices may be less than satisfactory 

relative to the enterprise’s size, 

complexity, and risk profile. However, 

there is only a remote threat to the 

holding company enterprise’s continued 

viability. 

Composite 4. A holding company 

enterprise in this group has serious 

financial or managerial deficiencies that 

result in unsatisfactory performance. 

The supervisory concerns, which 

management and the board are not 

satisfactorily addressing, range from 

severe to critically deficient. A holding 

company enterprise in this group is 

generally not capable of withstanding 

adverse business fluctuations. Risk 

management practices are generally 

unacceptable relative to the enterprise’s 

size, complexity, and risk profile. The 

enterprise may place undue pressure on 

subsidiaries to meet its cash flow by 

upstreaming imprudent dividends or 

fees. Unless there is prompt action to 

correct these conditions, future viability 

could be impaired. 

Composite 5. The magnitude and 

character of the risk management or 

financial weaknesses of a holding 

company enterprise in this category 

could lead to insolvency without 

immediate aid from shareholders or 

supervisory action. The volume and 

severity of problems are beyond the 

board and management’s ability or 

willingness to control or correct. Risk 

management practices are inadequate 

relative to the enterprise’s size, 

complexity, and risk profile. The 

inability to prevent liquidity or capital 

depletion places the holding company 

enterprise’s continued viability in 

serious doubt. 

Capital Adequacy (C) Component Rating 

C reflects the adequacy of an 

enterprise’s consolidated capital 

position, from a regulatory perspective 

and an economic capital perspective, as 

appropriate to the holding company 

enterprise. During OTS’s review of 

capital adequacy, OTS will consider the 

risk inherent in an enterprise’s activities 

and the ability of capital to absorb 

unanticipated losses, support business 

activities including the level and 

composition of the parent company and 

subsidiaries’ debt, and support business 

plans and strategies. 

Capital Rating 1. A rating of 1 

indicates that the consolidated holding 

company enterprise maintains an 

abundant amount of capital to support 

the volume and risk characteristics of its 

business lines and products; to provide 

a significant cushion to absorb 

unanticipated losses; and to fully 

support the level and composition of 

borrowing. In addition, the enterprise 

has abundant capital to support its 

business plans and strategies, it has the 

ability to enter capital markets to raise 

additional capital as necessary, and it 

has a strong capital allocation and 

planning process. 

Capital Rating 2. A rating of 2 

indicates that the consolidated holding 

company enterprise maintains adequate 

capital to support the volume and risk 

characteristics of its business lines and 

products; to provide a sufficient cushion 

to absorb unanticipated losses; and to 

support the level and composition of 

borrowing. In addition, the enterprise 

has sufficient capital to support its 

business plans and strategies, it has the 

ability to enter capital markets to raise 

additional capital when necessary, and 

it has a satisfactory capital allocation 

and planning process. 

Capital Rating 3. A rating of 3 

indicates that the consolidated holding 

company enterprise may not maintain 

sufficient capital to support the volume 

and risk characteristics of certain 

business lines and products; the 

unanticipated losses arising from the 

activities; or the level and composition 

of borrowing. In addition, the enterprise 

may not maintain a sufficient capital 

position to support its business plans 

and strategies, it may not have the 

ability to enter into capital markets to 

raise additional capital as necessary, or 

it may not have a sufficient capital 

allocation and planning process. The 

capital position of the consolidated 

holding company enterprise could 

quickly become inadequate if there is 

deterioration in operations. 

Capital Rating 4. A rating of 4 

indicates that the capital level of the 

consolidated holding company 

enterprise is significantly below the 

amount needed to ensure support for 

the volume and risk characteristics of 

certain business lines and products; the 

unanticipated losses arising from 

activities; and the level and composition 

of borrowing. In addition, the 

weaknesses in the capital position 


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prevent the enterprise from supporting 

its business plans and strategies, it may 

not have the ability to enter into capital 

markets to raise additional capital as 

necessary, or it has a weak capital 

allocation or planning process. 

Capital Rating 5. A rating of 5 

indicates that the level of capital of the 

consolidated holding company 

enterprise is critically deficient. 

Immediate assistance from shareholders 

or other external sources of financial 

support is required. 

Organizational Structure (O) Component 

Rating 

The O component is an assessment of 

the operations and risks in the holding 

company enterprise. In the O 

component, OTS evaluates the 

organizational structure, considering the 

lines of business, affiliate relationships, 

concentrations, exposures, and the 

overall risk inherent in the structure. 

OTS’s analysis under the O 

component considers existing as well as 

potential issues and risks. OTS pays 

particular attention to the following 

types of risk in assigning the O rating: 

Type of risk Description 

Credit ............. Credit risk arises from the 

potential that a borrower 

or counterparty will fail to 

perform on an obligation. 

Market ............ Market risk is the risk to a financial institution’s condition resulting from adverse 

movements in market 

rates or prices, such as interest rates, foreign exchange rates, or equity 

prices. 

Liquidity .......... Liquidity risk is the potential 

that an institution will be 

unable to meet its obligations as they come due 

because of an inability to 

liquidate assets or obtain 

adequate funding (funding 

liquidity risk) or that it cannot easily unwind or offset 

specific exposures without 

significantly lowering market prices because of inadequate market depth or 

market disruptions (market 

liquidity risk). 

Type of risk Description 

Operational .... Operational risk arises from 

the potential that inadequate information systems, operational problems, breaches in internal 

controls, fraud, or unforeseen catastrophes will result in unexpected losses. 

Transaction risk arises 

from problems with service 

or product delivery. This 

risk is a function of internal controls, information 

systems, employee integrity, and operating processes. 

Legal/Compliance.Legal risk arises from the 

potential that unenforceable contracts, lawsuits, or 

adverse judgments can 

disrupt or otherwise negatively affect the operations 

or condition of a banking 

organization. Compliance 

risk is the risk to earnings 

or capital arising from violations of, or nonconformance with, laws, rules, regulations, prescribed practices, or ethical standards. 

Reputation ...... Reputation risk is the potential that negative publicity 

regarding an institution’s 

business practices, whether true or not, will cause a 

decline in the customer 

base, costly litigation, or 

revenue reductions. 

Country/Sovereign.Country risk arises from the 

general level of political, financial, and economic uncertainty in a country, 

which impacts the value of 

the country’s bonds and 

equities. Sovereign risk is 

the risk that a central bank 

will impose foreign exchange regulations that 

will reduce or negate the 

value of foreign exchange 

contracts. It also refers to 

the risk of government default on a loan made to a 

country or guaranteed by 

it. 

Type of risk Description 

Contagion/Systemic.Contagion entails the risk 

that financial difficulties 

encountered by a business line or subsidiary of 

a holding company could 

have an adverse impact 

on the financial stability of 

the enterprise and possibly even on the markets 

in which the constituent 

parts operate. Systemic 

risk is defined by financial 

system instability, potentially catastrophic, caused 

or exacerbated by idiosyncratic events or conditions 

in financial intermediaries. 

Impacted areas include: 

market value of positions, 

liquidity, credit-worthiness 

of counterparties and obligors, default rates, liquidations, risk premia, and 

valuation uncertainty. 

Concentration The exposure to losses due 

to a concentration (assets, 

liabilities, off-balancesheet) at the subsidiary, 

business line, and/or enterprise level. 

Intra-Group 

Transactions.

Exposures to risk that result 

from transactions between 

affiliates. 

Strategic and 

Execution.

Strategic and execution risk 

is the risk to earnings or 

capital arising from adverse business decisions 

or improper implementation of those decisions. 

This risk is a function of 

the compatibility of an organization’s strategic 

goals, the business strategies developed to achieve 

those goals, the resources 

deployed against these 

goals, and the quality of 

implementation. The resources needed to carry 

out business strategies 

are both tangible and intangible. They include 

communication channels, 

operating systems, delivery networks, and managerial capacities and capabilities. Strategic risk focuses on more than an 

analysis of the written 

strategic plan. It focuses 

on how plans, systems, 

and implementation affect 

the enterprise’s franchise 

value. It also incorporates 

how management analyzes external factors that 

impact the strategic direction of the company. 


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Type of risk Description 

Insurance 

Pricing and 

Underwriting 

Risk.

The risk that pricing and underwriting practices are inadequate to provide for 

the risks assumed. 

Reserving Risk The risk that actual losses or 

other contractual payments reflected in reported 

reserves or other liabilities 

will be greater than estimated. 

Organizational Structure Rating 1. A 

rating of 1 indicates that the 

organizational structure, including the 

nature and level of risk associated with 

the affiliates’ activities, pose minimal 

concern. Management controls and 

monitors intra-group exposures. Any 

concerns posed by strategic plans, the 

control environment, concentrations, 

legal or reputational issues, or other 

types of risk within the enterprise are 

minor, and management and the board 

can address them in the normal course 

of business. 

Organizational Structure Rating 2. A 

rating of 2 indicates that the 

organizational structure exhibits minor 

weaknesses, but the nature and level of 

risks associated with the holding 

company’s activities are unlikely to be 

material concerns. Intra-group 

exposures, including servicing 

agreements, are generally acceptable, 

but isolated transactions or exposures 

may present limited cause for regulatory 

concern. Concerns posed by strategic 

plans, the control environment, 

concentrations, legal or reputational 

issues, or other types of risks within the 

enterprise are modest, and management 

and the board can address them in the 

normal course of business. 

Organizational Structure Rating 3. A 

rating of 3 indicates that there are 

organizational structure weaknesses that 

raise supervisory concern. The nature 

and level of risks associated with the 

holding company activities are 

moderately likely to cause concern. 

Intra-group exposures, including 

servicing agreements, have the potential 

to undermine the financial condition of 

other companies in the enterprise. 

Strategic growth plans, weaknesses in 

the control environment, 

concentrations, legal or reputational 

issues, or other types of risk within the 

enterprise are moderately likely to cause 

regulatory concern. The enterprise has 

one or more entities in the structure that 

could adversely affect the operation of 

other entities in the enterprise if 

management does not take corrective 

action. 

Organizational Structure Rating 4. A 

rating of 4 indicates that there are 

weaknesses in the organizational 

structure of the enterprise, and/or the 

nature and level of risks associated with 

the holding company’s activities are, or 

have a considerable likelihood of 

becoming, a cause for concern. Intragroup exposures, including servicing 

agreements, may also have the 

immediate potential to undermine the 

operations of companies in the 

enterprise. Strategic growth plans, 

weaknesses in the control environment, 

concentrations, legal or reputational 

issues, or other types of risk within the 

enterprise may be of considerable cause 

for regulatory concern. The weaknesses 

identified could seriously affect the 

operation of one or more companies in 

the enterprise. 

Organizational Structure Rating 5. A 

rating of 5 indicates that there are 

substantial weaknesses in the 

organizational structure of the 

enterprise, and/or the nature and level 

of risks associated with the activities 

are, or pose a high likelihood of 

becoming, a significant concern. 

Strategic growth plans, a deficient 

control environment, concentrations, 

legal or reputational issues, or other 

types of risk within the enterprise may 

be of critical concern to one or more 

companies in the enterprise. The 

weaknesses identified seriously 

jeopardize the continued viability of one 

or more companies in the enterprise. 

Risk Management (R) Component Rating 

R represents OTS’s evaluation of the 

ability of the directors and senior 

management, as appropriate for their 

respective positions, to identify, 

measure, monitor, and control risk. The 

R rating underscores the importance of 

the control environment, taking into 

consideration the complexity of the 

enterprise and the risk inherent in its 

activities. 

The R rating includes an assessment 

of four areas: board and senior 

management oversight; policies, 

procedures, and limits; risk monitoring 

and management information systems; 

and internal controls. These areas are 

evaluated in the context of inherent 

risks as related to the size and 

complexity of the holding company’s 

operations. They provide a consistent 

framework for evaluating risk 

management and the control 

environment. Moreover, a consistent 

review of these four areas provides a 

clear structure and basis for discussion 

of the R rating. 

Risk management element Description 

Governance/Board and Senior Management 

Oversight.

This area evaluates the adequacy and effectiveness of board and senior management’s understanding and management of risk inherent in the holding company enterprise’s activities, 

as well as the general capabilities of management. It also considers management’s ability to 

identify, understand, and control the risks within the holding company enterprise, to hire 

competent staff, and to respond to changes in risk profile or changes in the holding company’s operating sectors. 

Policies, Procedures, and Limits ........................ This area evaluates the adequacy of policies, procedures, and limits given the risks inherent in 

the activities of the consolidated enterprise and its stated goals and objectives. OTS’s analysis considers the adequacy of the enterprise’s accounting and risk disclosure policies and 

procedures. 

Risk Monitoring and Management Information 

Systems.

This area assesses the adequacy of risk measurement and monitoring, and the adequacy of 

the holding company’s management reports and information systems. Include a review of 

the assumptions, data, and procedures used to measure risk and the consistency of these 

tools with the level of complexity of the enterprise’s activities. 

Internal Controls ................................................. This area evaluates the adequacy of internal controls and internal audit procedures, including 

the accuracy of financial reporting and disclosure and the strength and influence of the internal audit team. Include a review of the independence of control areas from management 

and the consistency of the scope coverage of the internal audit team with the complexity of 

the enterprise. 


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Risk Management Rating 1. A rating 

of 1 indicates that management 

effectively identifies and controls all 

major enterprise risks. Management is 

fully prepared to address risks 

emanating from new products and 

changing market conditions. The board 

and management are forward-looking 

and active participants in managing 

risk. Management ensures that 

appropriate policies and limits exist and 

that the board understands, reviews, 

and approves them. Policies and limits 

are supported by risk monitoring 

procedures, reports, and management 

information systems that provide 

management and the board with the 

information and analysis necessary to 

make timely and appropriate decisions 

in response to changing conditions. Risk 

management practices and the 

enterprise’s infrastructure are flexible 

and highly responsive to changing 

industry practices and current 

regulatory guidance. Staff has sufficient 

expertise and depth to manage the risks 

assumed. Internal controls and audit 

procedures are sufficiently 

comprehensive and appropriate to the 

size and activities of the holding 

company. There are few noted 

exceptions to the enterprise’s 

established policies and procedures, 

and none is material. Management 

effectively and accurately monitors and 

manages the enterprise consistent with 

applicable laws, regulations, and 

guidance, and in accordance with 

internal policies and procedures. Risk 

management processes are fully 

effective in identifying, monitoring, and 

controlling risks. 

Risk Management Rating 2. A rating 

of 2 indicates that the enterprise’s 

management of risk is largely effective, 

but exhibits some minor weaknesses. 

Management and the board demonstrate 

a responsiveness and ability to cope 

successfully with existing and 

foreseeable risks in the business plans. 

While the enterprise may have some 

minor risk management weaknesses, 

management and the board have 

recognized and are resolving these 

problems. Overall, board and senior 

management oversight, policies and 

limits, risk monitoring procedures, 

reports, and management information 

systems are satisfactory and effective. 

Risks are controlled and do not require 

additional supervisory attention. The 

holding company enterprise’s risk 

management practices and 

infrastructure are satisfactory, and 

management makes appropriate 

adjustments in response to changing 

industry practices and current 

regulatory guidance. Staff expertise and 

depth are generally appropriate to 

manage the risks assumed. Internal 

controls may display modest 

weaknesses or deficiencies, but they are 

correctable in the normal course of 

business. The examiner may have 

recommendations for improvement, but 

the weaknesses noted should not have 

a significant effect on the condition of 

the enterprise. 

Risk Management Rating 3. A rating 

of 3 signifies that there are moderate 

deficiencies in risk management 

practices and, therefore, there is a cause 

for additional supervisory attention. 

One or more of the four elements of 

sound risk management is not 

acceptable, which precludes the 

enterprise from fully addressing one or 

more significant risks to its operations. 

Certain risk management practices need 

improvement to ensure that 

management and the board are able to 

identify, monitor, and control all 

significant risks. In addition, the risk 

management structure may need 

improvement in areas of significant 

business activity, or staff expertise may 

not be commensurate with the scope 

and complexity of business activities. 

Management’s response to changing 

industry practices and regulatory 

guidance may not be sufficient. The 

internal control system may be lacking 

in some important aspects, leading to 

continued control exceptions or failure 

to adhere to written policies and 

procedures. The risk management 

weaknesses could have adverse effects if 

management does not take corrective 

action. 

Risk Management Rating 4. A rating 

of 4 represents deficient risk 

management practices that fail to 

identify, monitor, and control 

significant risk exposures in material 

respects. There is a general lack of 

adequate guidance and supervision by 

management and the board. One or 

more of the four elements of sound risk 

management is deficient and requires 

immediate and concerted corrective 

action by the board and management. 

The enterprise may have serious 

identified weaknesses that require 

substantial improvement in internal 

control, accounting procedures, or 

adherence to laws, regulations, and 

supervisory guidance. The risk 

management deficiencies warrant a high 

degree of supervisory attention because, 

unless properly addressed, they could 

seriously affect the condition of the 

holding company enterprise. 

Risk Management Rating 5. A rating 

of 5 indicates a critical absence of 

effective risk management practices in 

identifying, monitoring, or controlling 

significant risk exposures. One or more 

of the four elements of sound risk 

management is wholly deficient, and 

management and the board have not 

demonstrated the capability to address 

these deficiencies. Internal controls are 

critically weak and could seriously 

jeopardize the continued viability of the 

enterprise. If not already evident, there 

is an immediate concern about the 

reliability of accounting records and 

regulatory reports and the potential for 

losses if corrective measures are not 

taken immediately. Deficiencies in the 

enterprise’s risk management 

procedures and internal controls require 

immediate and close supervisory 

attention. 

Earnings (E) Component Rating 

E reflects the consolidated holding 

company enterprise’s overall financial 

performance, including measures such 

as the quality of consolidated earnings, 

profitability, and liquidity. OTS’s 

review of this area considers the level, 

trend, and sources of earnings on a 

consolidated level as well as for 

material legal entities or business lines. 

OTS also assesses the ability of earnings 

to augment capital and to provide 

ongoing support for an enterprise’s 

activities. 

Within this component, OTS also 

considers the liquidity of the enterprise. 

This rating reflects the consolidated 

holding company enterprise’s ability to 

attract and maintain the sources of 

funds necessary to achieve financial 

efficiency, support operations, and meet 

obligations. OTS evaluates the funding 

conditions for each of the material legal 

entities in the holding company 

structure to determine if any 

weaknesses exist that could affect the 

funding profile of the consolidated 

enterprise. 

Earnings Rating 1. A rating of 1 

indicates that the consolidated holding 

company enterprise’s overall financial 

performance is solid. The quantity and 

quality of earnings for material business 

lines and subsidiaries are sufficient to 

make full provision for the absorption of 

losses and/or accretion of capital in 

light of asset quality and business plan 

objectives. The enterprise has strong 

liquidity levels along with welldeveloped funds management practices. 

The parent company and subsidiaries 

have reliable and sufficient access to 

sources of funds on favorable terms to 

meet present and anticipated liquidity 

needs. 

Earnings Rating 2. A rating of 2 

indicates that the consolidated holding 

company enterprise’s financial 

performance is adequate. The quantity 

and quality of the earnings for major 

business lines and subsidiaries are 


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generally adequate to make provision 

for the absorption of losses and/or 

accretion of capital in light of asset 

quality and business plan objectives. 

The enterprise maintains satisfactory 

liquidity levels and funds management 

practices. The parent company and 

subsidiaries have access to sufficient 

sources of funds on acceptable terms to 

meet present and anticipated liquidity 

needs. Modest weaknesses in funds 

management practices may be evident, 

but management and the board can 

correct those weaknesses in the normal 

course of business. 

Earnings Rating 3. A rating of 3 

indicates that the consolidated holding 

company enterprise’s financial 

performance exhibits modest 

weaknesses. Major business line and 

subsidiary earnings are not fully 

adequate to make provisions for the 

absorption of losses and the accretion of 

capital in relation to the business plan 

objectives. The financial performance of 

this enterprise may reflect static or 

inconsistent earnings trends, 

chronically insufficient earnings, or less 

than satisfactory asset quality. This 

enterprise’s liquidity levels or funds 

management practices may need 

improvement. The enterprise may lack 

ready access to funds on reasonable 

terms or may evidence significant 

weaknesses in funds management 

practices at the parent company or 

subsidiary levels. However, these 

deficiencies are correctable in the 

normal course of business with 

sufficient board and management 

attention. 

Earnings Rating 4. A rating of 4 

indicates that the consolidated holding 

company enterprise’s financial 

performance is weak. Major business 

line or subsidiary earnings are 

insufficient to provide for losses and the 

necessary accretion of capital. The 

enterprise may exhibit erratic 

fluctuations in net income, poor 

earnings (and the likelihood of a further 

downward trend), intermittent losses, 

chronically depressed earnings, or a 

substantial drop from previous 

performance. The liquidity levels or 

funds management practices of this 

holding company enterprise may be 

deficient. The enterprise may not have 

or be able to obtain a sufficient volume 

of funds on reasonable terms to meet 

liquidity needs at the parent company 

or subsidiary levels. 

Earnings Rating 5. A rating of 5 

indicates that the consolidated holding 

company enterprise has poor financial 

performance and one or more business 

lines or subsidiaries are experiencing 

losses. Such losses, if not reversed, 

represent a distinct threat to the 

enterprise’s solvency through erosion of 

capital. In addition, the liquidity levels 

or funds management practices are 

critically deficient and may threaten 

continued viability. The enterprise 

requires immediate external financial 

assistance to meet maturing obligations 

or other liquidity needs. 

Dated: April 3, 2007. 

By the Office of Thrift Supervision. 

Scott M. Polakoff, 

Deputy Director & Chief Operating Officer. 

[FR Doc. E7–6602 Filed 4–6–07; 8:45 am] 

BILLING CODE 6720–01–P 

DEPARTMENT OF VETERANS 

AFFAIRS 

[OMB Control No. 2900–0222] 

Proposed Information Collection 

Activity: Proposed Collection; 

Comment Request 

AGENCY: National Cemetery 

Administration, Department of Veterans 

Affairs. 

ACTION: Notice. 

SUMMARY: The National Cemetery 

Administration (NCA), Department of 

Veterans Affairs (VA), is announcing an 

opportunity for public comment on the 

proposed collection of certain 

information by the agency. Under the 

Paperwork Reduction Act (PRA) of 

1995, Federal agencies are required to 

publish notice in the Federal Register 

concerning each proposed collection of 

information, including each proposed 

extension of a currently approved 

collection for which approval has 

expired, and allow 60 days for public 

comment in response to the notice. This 

notice solicits comments on the 

information needed to obtain a 

government headstone or grave marker. 

DATES: Written comments and 

recommendations on the proposed 

collection of information should be 

received on or before June 8, 2007. 

ADDRESSES: Submit written comments 

on the collection of information through 

www.Regulations.gov; or to Mechelle 

Powell, National Cemetery 

Administration (40D), Department of 

Veterans Affairs, 810 Vermont Avenue, 

NW., Washington, DC 20420; or e-mail: 

mechelle.powell@va.gov. Please refer to 

‘‘OMB Control No. 2900–0222’’ in any 

correspondence. During the comment 

period, comments may be viewed online 

through the Federal Docket Management 

System (FDMS) at www.Regulations.gov. 

FOR FURTHER INFORMATION CONTACT: 

Mechelle Powell at (202) 501–1960 or 

FAX (202) 273–9381. 

SUPPLEMENTARY INFORMATION: Under the 

PRA of 1995 (Public Law 104–13; 44 

U.S.C. 3501–21), Federal agencies must 

obtain approval from the Office of 

Management and Budget (OMB) for each 

collection of information they conduct 

or sponsor. This request for comment is 

being made pursuant to Section 

3506(c)(2)(A) of the PRA. 

With respect to the following 

collection of information, NCA invites 

comments on: (1) Whether the proposed 

collection of information is necessary 

for the proper performance of NCA’s 

functions, including whether the 

information will have practical utility; 

(2) the accuracy of NCA’s estimate of the 

burden of the proposed collection of 

information; (3) ways to enhance the 

quality, utility, and clarity of the 

information to be collected; and (4) 

ways to minimize the burden of the 

collection of information on 

respondents, including through the use 

of automated collection techniques or 

the use of other forms of information 

technology. 

Title: Application for Standard 

Government Headstone or Marker for 

Installation in a Private or State 

Veterans’ Cemetery, VA Form 40–1330. 

OMB Control Number: 2900–0222. 

Type of Review: Extension of a 

currently approved collection. 

Abstract: The next of kin or other 

responsible parties of deceased veterans 

complete VA Form 40–1330 to apply for 

Government provided headstones or 

markers for unmarked graves. VA uses 

the data collected to determine the 

veteran’s eligibility for headstone or 

marker. 

Affected Public: Individuals or 

Households. 

Estimated Annual Burden: 83,500 

hours. 

Estimated Average Burden Per 

Respondent: 15 minutes. 

Frequency of Response: On occasion. 

Estimated Number of Respondents: 

334,000. 

Dated: March 29, 2007. 

By direction of the Secretary. 

Denise McLamb, 

Program Analyst, Records Management 

Service. 

[FR Doc. E7–6513 Filed 4–6–07; 8:45 am] 

BILLING CODE 8320–01–P 


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